Expand the sentences, using the information from the text.

1. Economics is the study of how ……

2. Economy is …..

3. Scarcity is the condition in which….

4. Macroeconomics is the branch of economics that ….

5. Microeconomics is ……

READING II

1. Read the text and focus on the following:

- a difference between wants and needs;

- economic goods;

- economic services;

- factors of production/productive resources;

- sectors in the economy;

- opportunity cost

SATISFYING PEOPLE’S WANTS

Economics is the study of how individuals and society choose to use limited resources in an effort to satisfy people's unlimited wants. It is important to point out that there is a difference between wants and needs. Needs are basic necessities such as food, clothing and shelter. Other so-called “needs” are really “wants”. For example, you may want new clothes, but whether or not you need them is a value judgement. Most people’s needs are limited. In contrast, people’s wants are unlimited. Satisfying such wants involves the production of economic goods and services.

Economic goods are things of value that you can see and show to the others. They are things like bicycles, books, stereos, and clothing. Economic goods also include such things as factories, stores, machines, and tools.

Economic services are intangible things that have value but often cannot be seen, touched, or shown to others. The examples of economic services are medical care, legal advice, movies and national defence.

Factors of production are also called productive resources. These are the basic resources which are needed for the production of economic goods and services. Economists divide factors of production into four basic categories: (1) natural resources, (2) capital goods, (3) labour and (4) entrepreneurship.

Natural resources are things provided by nature. Land, air, water, forests, coal, iron ore, oil, and other minerals are examples of natural resources. They are the starting points of all production, and they represent the most basic limitations of the productive capacity of an economy. In other words, no matter how much skilled labour and technological knowledge an economy has, it cannot create goods if it lacks natural resources.

Capital goods are human-made resources that are used for the production of other goods and services. Factories, machines, tools, trucks, and business buildings are all examples of capital goods.

It is important to distinguish between capital goods and consumer goods.

Consumer goods, which are not a factor of production, are finished products sold to consumers for their own personal use. They include such things as food, clothing, TV sets, and newspapers. In contrast, capital goods are things that are used in the production of consumer goods and services. A factory that manufactures TV sets is a capital good. Some things can be either consumer goods or capital goods, depending on how they are used. For example, an automobile purchased for personal use is a consumer good. However, automobiles purchased for use as taxis or for other business purposes are capital goods

Labour, sometimes called human resources, is any form of a human effort exerted in production. It includes all kinds of work. The work of a teacher, lawyer, engineer, and the governor of your state are all examples of labour. Labour is essential to production, since natural resources and capital goods are of no value unless they can be put to use.

The three factors of production described above - natural resources, capital goods and labour must be combined and organized before production can take place. This is where entrepreneurship, the fourth factor of production, enters the picture. Entrepreneurship may be defined as the function of combining and organizing natural resources, capital goods, and labour, assuming the risks of business failure, and providing the creativity and managerial skills necessary for production to take place. An entrepreneur is a person who carries out these tasks in the hope of making financial gains from the endeavour.

The economy includes several sectors (also called industries), that evolve in successive phases. Theyare the following:

• Primary sector. It involves the extraction and production of raw materials.

• Secondary sector. It involves the transformation of raw or intermediate
materials into goods.

• Tertiary sector. It involves the provision of services to consumers and
businesses.

• Quaternary sector. It involves the research and development needed to
produce products from natural resources.

Economists use the term opportunity cost to refer to the value of what is foregone in order to have something else or it is the next best alternative which is given up when a decision is made to use limited resources in a particular way.Opportunity costis an important concept in microeconomics. Many courses of action are valued in terms of what is sacrificed so that they might be undertaken. For example, the opportunity cost of a public project is thevalue of the additional goods that the private sector would have produced with the resources used for the public project. Opportunity cost is different for each individual and nation. Thus, what is valued more than something else will vary among people and countries when decisions are made about how to allocate resources.